1. Aggregate Planning

2. Production and Operations Planning
Production Process Design
Long Term Capacity Planning
Aggregate Planning
Forecast
Master Production Schedule
Demand
Material Requirements Planning
Individual Order Scheduling

3. The main idea behind aggregate planning
Translates business plans into rough labor schedules and production plans

4. Issues to Consider for Aggregate Planning
Production rate: “aggregate units” per worker per unit time
Workforce level: available workforce in terms of hours
Actual Production: Production rate x Workforce level
Inventory: Units carried over from previous periods
Costs: production, changing workforce, inventory

5. Given the number of variables, there is not a single optimal solution!
What does aggregate planning do?
Given an aggregate demand forecast , determine production levels, inventory levels, and workforce levels, in order to minimize total relevant costs over the planning horizon
Given the number of variables, there is not a single optimal solution!

6. Aggregate Planning Strategies
Chase strategy: match production rate to production requirements by varying the workforce (no inventory buildup or shortage allowed)
Level strategy: keep a constant workforce who work at maximum capacity (inventory will vary from period to period); workforce level chosen such that the total requirement over the planning horizon can be exactly met
Stable workforce: keep a constant workforce who work at maximum capacity; outsource in order to match production and requirements (no inventory buildup or shortage allowed); workforce level chosen such that they can exactly satisfy the requirements in the period with the minimum requirement level

7. Example: CA&J Company…
JAN
FEB
MAR
APR
MAY
JUN
Total
Demand Forecast
1,800
1,500
1,100
900
1,600
8,000
Working Days 22 19 21 20
125
Costs
Inventory
Inventory holding
$1.50/unit/month
Backorders
$5.00/unit/month
Hiring and training
$200.00/worker
Layoff
$250.00/worker
Labor time required
0.20 units/hour
Straight time cost (8 hours)
$4.00/hour
Outsourcing
$20.00/unit
Beginning Inventory
400 units
Labor
Beginning Labor
40 workers

8. First step: Analyze the requirements…
JAN
FEB
MAR
APR
MAY
JUN
Beginning Inventory
400
Demand Forecast
1,800
1,500
1,100
900
1,600
Production requirement
Ending Inventory
Production requirement = Forecast – Beginning Inventory
Ending Inventory = Beginning Inventory + Production Requirement – Forecast

9. First step: Analyze the requirements…
JAN
FEB
MAR
APR
MAY
JUN
Beginning Inventory
400
Demand Forecast
1,800
1,500
1,100
900
1,600
Production requirement
1,400
Ending Inventory

10. Plan 1: Chase strategy (variable workforce)
JAN
FEB
MAR
APR
MAY
JUN
Production requirement
1,400
1,500
1,100
900
1,600
Production hours required
Days per month 22 19 21 20
Worker hours per month
Workers required
Workers hired
Hiring cost
Workers laid off
Layoff cost
Labor cost

11. Plan 1: Chase strategy Production requirement
JAN
FEB
MAR
APR
MAY
JUN
Production requirement
1,400
1,500
1,100
900
1,600
Production hours required
7,000
7,500
5,500
4,500
8,000
Days per month 22 19 21 20
Worker hours per month
176
152
168
160
Workers required 40 49 33 27 31 50
Workers hired 9 4
Hiring cost
1800
800
3,800
Workers laid off 16 6
Layoff cost
4,000
Labor cost
28,000
30,000
22,000
18,000
32,000

12. Plan 1: Chase strategy Hiring cost 6,400 Layoff cost 5,500 Labor cost
152,000
Total Cost
163,900

13. Plan 2: Level strategy Beginning inventory Working days per month
JAN
FEB
MAR
APR
MAY
JUN
Beginning inventory
400
Working days per month 22 19 21 20
Production hours available
Monthly production level
Demand Forecast
1,800
1,500
1,100
900
1,600
Ending Inventory
Shortage Cost
Inventory cost
Labor cost

14. Plan 2: Level strategy Number of workers required
= Total hours required over planning horizon/(8*total days)
= 38,000/(8*125) = 38. This is the no. of workers for each month
JAN
FEB
MAR
APR
MAY
JUN
Beginning inventory
400
-62
-407
-230
147
385
Working days per month 22 19 21 20
Production hours available
6688
5776
6384
6,384
6,688
6,080
Monthly production level
1,338
1,155
1,277
1,216
Demand Forecast
1,800
1,500
1,100
900
1,600
Ending Inventory 1
Shortage Cost
310
2035
1150
Inventory cost
220.5
577.5
1.5
Labor cost
26752
23104
25536
24320

15. Plan 2: Level strategy Layoff cost 500 Shortage cost 3,495
Inventory cost
798
Labor cost
152,000
Total Cost
156,793

16. Plan 3: Stable strategy with outsourcing
JAN
FEB
MAR
APR
MAY
JUN
Production requirement
1,400
1,500
1,100
900
1,600
Working days per month 22 19 21 20
Monthly production hours
Monthly production level
Monthly outsourcing level
Monthly outsourcing cost
Monthly labor cost

17. Plan 3: Stable strategy with outsourcing
Number of workers
= enough workers to cover requirements in April
= 900*5/(21*8)
= 27 workers (this is the no. of workers for each month)
JAN
FEB
MAR
APR
MAY
JUN
Production requirement
1,400
1,500
1,100
900
1,600
Working days per month 22 19 21 20
Monthly production hours
4,752
4,104
4,536
4,320
Monthly production level
950
821
907
864
Monthly outsourcing level
450
679
193 -
150
736
Monthly outsourcing cost
9,000
13,580
3,860
3,000
14,720
Monthly labor cost
19,008
16 416
18,144
17,280

18. Plan 3: Stable strategy with outsourcing
Layoff Cost
3,250
Outsourcing Cost
44,160
Labor Cost
108,000
Total Cost
155,410

19. Comparison Chase Level Stable Layoff cost 500 Shortage cost 3,495
Inventory cost
798
Labor cost
152,000
Total Cost
156,793
Hiring cost
6,400
Layoff cost
5,500
Labor cost
152,000
Total Cost
163,900
Layoff Cost
3,250
Outsourcing Cost
44,160
Labor cost
108,000
Total Cost
155,410
Chase
Level
Stable

20. We can always plug the data in and re-calculate the costs
“Sensitivity Analysis”
WHAT IF…
… outsourcing costs increase or decrease?
… the holding costs are higher?
… the hiring costs are lower?
… the firing costs are higher?
We can always plug the data in and re-calculate the costs